Tag Archives: financial crisis

In this interview, former Greek finance minister, Yanis Varoufakis, outlines the nature of the 2008 financial crisis, the reasons for the program of “quantitative easing” and the irrational actions of the western European leaders. The fundamental point he seems to miss is the debt growth imperative that is inherent in today’s global money system, the underlying fact that keeps everyone trapped in a system that is driving the whole of civilization toward disaster.

In this interview, Barofsky says that Treasury Secretary Tim Geithner’s claims about his LIBOR whistle-blowing are “not credible,” and that the entire regulatory process has become “captured to the interests of the banks.”

Barofsky says that LIBOR was built into the bailout plan, so the fraud means the taxpayers are being repaid less than they should be, and added “I hope we see people in handcuffs.”

Because of the way in which its people have responded to the financial crisis, tiny Iceland has drawn a lot of attention lately. Some pertinent information about this was provided in a previous post. Prof. Margrit Kennedy, author of Interest and Inflation Free Money, traveled to Iceland recently on a fact-finding tour. Her report below provides some additional insights. –t.h.g.

A Visit in Iceland

Margrit Kennedy. 23 September 2011

[English translation by Prof. Philip Beard, Ph.D.]

When I read an article two months ago about the state bankruptcy in Iceland and the public’s refusal to accept the government’s debt retirement plan, as a result of which the three largest banks became insolvent, I decided to travel to Iceland. I wanted to find out whether the new, popularly-elected 25-member Council, whose job was to formulate proposals for a new constitution, had made any statements regarding the monetary or financial system. No such news had shown up in the several reports and English translations I’d gathered.

So a week ago, off I flew, after having received a few contact addresses from friends and having made three appointments with “Constitutional Council” members via email. I stayed in Reykjavik from 9/13 till 9/19 and then went for a day to Solheimar, Iceland’s only eco-village, whose director had supplied me with these council members’ addresses.

Hardly had I arrived at my Reykjavik hotel when the first of my interlocutors showed up: Salvör Nordal. A professor of ethics at Reykjavik University, she answered my questions patiently, and in about the first half hour filled me in on what all my later conversations would confirm: No, no one had said anything about the systemic monetary roots of the crash. The Council’s discussions revolved around laying new groundwork for their democracy, environmental protection and protection of the commons, more transparency in governmental affairs and thereby better regulatory capacities. She was glad to hear and watch my short presentation on the topic “Money rules the world! — But who rules the money?”, and immediately said, “You must meet my friend in the finance ministry. For sure, she’ll be fascinated by what you’ve got to say.” Then she departed. It was Tuesday evening.

The next day I met the man who had been elected to the Council with the most votes, the economist Prof. Sylfarson. We had a short, congenial conversation of about an hour in which I learned that from where he stood, the situation in Iceland had returned to “normal”. Before the crash everything had been more or less exaggerated: salaries, the value of the Icelandic crown, housing prices, the standard of living. In his opinion his countryfolk were still doing well (which corresponded to my own first impressions), and Iceland was now catching up to the rules that every other European democracy had been practicing for decades, e.g. universal suffrage, transparency of public budgets, environmental laws, etc.

And no, the monetary system had not come under discussion. Monetary matters remained pretty much as they had been, except that an index was now being applied to loans in order to reduce excessive credit demands.

He had never heard of complementary currencies, though he was very interested in the couple of examples I described to him and asked me to send him more information.

My third conversation partner was the young singer Svarvar, a friend of friends who had witnessed the so-called “revolution” but hadn’t taken part in it. His opinion was that people had just been venting their fury at having all gotten poorer again, but he hadn’t seen much in the way of new values being adopted.

I could see, though, that the money theme fascinated him. He brought a few of his friends to my talk at Reykjavik University that I had been invited to give by the dean of the engineering and natural sciences faculty, Kristin Vala Ragnarsdottir, and some of her colleagues. They were all astonished that the room they’d chosen for the lecture turned out much too small. But the concierge had already figured from the many phone calls he’d received that we would need a larger room, and had arranged for it.

It took a little time to get the crowd moved to the new room, but an atmosphere of high spirits and goodwill prevailed. Obviously the 150-200 guests, many overflowing into the hallways, expected I’d be talking to them about something important. And I later learned that two translators had already published parts of my first book in Icelandic; they proudly showed me their published articles, replete with graphs. They didn’t know each other, but had each motivated a sizeable number of people to come to the talk. I could tell from their questions how deeply concerned they were about this topic, and I agreed to meet with the “hard core” of a few grassroots groups on Sunday evening at one of their gathering places to discuss action strategies.

That evening at dinner I had the pleasure of a conversation with the personal adviser of the Economics Minister about the drama that had led up to the near-total collapse of Iceland’s financial and economic system. This evening was the preparation for my discussion with the minister and the government’s chief economic adviser on Monday, shortly before leaving Reykjavik.

It was an important meeting for me, and for these two leading specialists as well. As it turned out, they had never before so clearly perceived the role of interest and compound interest in the lead-up to the collapse, even though they’d been confronted with it practically every day since 2006. And their serious countenances showed that they were taking it to heart. Their comments indicated however that it would take considerable time before these new insights could be applied to political practice. Germany, they said with mild regret, had no doubt been among the hardest hit by the whole matter. [Translator’s note: It’s unclear how this last sentence relates to the preceding line of thought.]

But I did have the feeling that they were open to new solutions. Most impressive for me was the evening I spent with representatives of perhaps seven grassroots initiatives, of whom at least three had been trying for years to get the money topic on people’s radar screens, with little prior but now greater success, to judge by their growing membership figures and the fact that they’re now “being heard” in the media.

The main topic was action strategies. Lots of concrete questions: How can we change this and that? What’s the best way to introduce complementary currencies? How can we reduce the debt burden that’s been forced upon our poorer citizens?

I told of our experiences with barter circles, regional currencies, and the WIR system, and described our successes in the Chiemgau and Vorarlberg regions. And I promised to send them written summaries of the key ingredients.

In any event we shall stay in contact, exchanging news of problems and successes. As I left I had the feeling of having sown some seeds – having nourished the hope and the knowledge that new pathways lie before us, and what they might look like.

Overall a newcomer to this country notices little of its bout with bankruptcy. You do see several unfinished skyscraper projects, especially near the seacoast and on the way to the airport. But very few people or neighborhoods look genuinely poor.

With the help of the 2.1-billion euro credit from the IMF, the country has once again just barely avoided total breakdown. Now people are rolling up their sleeves and saying, “We’ll make it back.” I certainly hope they will, because I have become very fond of the Icelanders in the week I spent with them.

The best, most concrete outcome of this trip would be for the grassroots groups to enjoy a new level of attention, understanding, and perhaps even active support for their efforts at introducing new systems – systems that prove that we can run our monetary affairs without interest.

Like this:

Iceland was one of the first countries to experience the financial crisis that plagues the world. It seems to be the canary in the coal mine, and as such, it may be showing us not only what is in store for the rest of us, but also a way out of our dilemma.

In this series of 5 videos, Prof. Michael Hudson explains very clearly what happened to Iceland and shows it to be an example of the pattern that is being played out in the rest of the world.

In the time since that interview was recorded, the people of Iceland have taken action that may get to the root of the problem. Instead of bailing out the banks and rewarding those who caused the problem in the first place, Iceland has, according to one of my correspondents:
– Totally recalled its government.
– Nationalized its main banks.
– Decided not to honor the claims from the UK and Holland due to their speculative policies.
– Created a popular assembly to rewrite its constitution.

Strangely, there has been very little about that in the media.

I would very much like to see reports that detail these actions, so I invite any of my readers who find them to pass them on by making comments to this post–t.h.g.

In a recent Washington Post article titled Europe’s ominous reckoning [1], economist Robert Samuelson correctly argued that “Ireland’s economic crisis is … not about Ireland.” What he seems to not recognize is that “Europe’s ominous reckoning” is not about Europe.

The reckoning will be global because the money and banking regime is global — and deeply flawed.

Discussions about possible solutions to the debt crisis tend to degenerate into ideological bickering because ideologies provides an inadequate framework in which to understand the nature of the problem and discover real effective solutions. Fiscal conservatives want to cut social spending so as to avoid raising taxes on the rich and privileged class. Political liberals have largely caved in to the same interests because they think that supporting the privileged class’s agenda is their only hope of gaining power. They will pay lip service to a social agenda and throw a few crumbs to the masses in an attempt to get elected, but they will ultimately advance the same elitist agenda, as have Presidents Clinton and Obama. Progressives argue that budgets can be balanced by cutting the military budget and raising taxes on the rich, but they remain impotent because political power has been so thoroughly centralized that popular progressive agendas have not a prayer of being implemented. Even if they were, they would simply make matters worse because under the present money and banking regime, a balanced government budget is not possible. How can the debate move beyond ideologies, and common ground be found?

Samuelson, like almost all conventionally trained economists, blames the woes of Ireland, and every other country, on failures in policy. He says, “Most European economies suffer from the ill effects of some combination of easy money, unsustainable social spending and big budget deficits,” but he fails to address the deeper questions of why? Why has money been easy? Why is social spending unsustainable? Why have budget deficits been too big?

It is not only a problem of European economies, it is a problem for virtually all national economies. As Samuelson points out, even the most prosperous countries have accumulated enormous debts. The governments of Germany and France, for example, have, respectively, gross debts of 76 percent and 86 percent of GDP (GDP is a measure of total economic output). The debt of the United States government is projected to exceed 100% of GDP within the next couple of years. And this picture does not even include the debts of lower levels of government — states, counties, and municipalities — or all of the private sector debt that burdens companies and individuals.

If the world has become so prosperous and productive, why all this debt, and why does it continue to grow ever more rapidly?

It is not a matter of policy, i.e., how we operate a flawed system. The problem is structural and systemic. The system is designed to create debt, and ever more of it. Like a pernicious cancer, debt is a parasite that is killing us, and in the end a parasite will die along with its host. How much of our well-being shall we sacrifice to keep feeding this cancer? Are we willing to starve ourselves and our children, to endure cuts in spending for education and public services, to sacrifice our hard-won freedoms, in order to sustain a system that despoils the earth, destroys the social fabric, and creates ever greater economic inequities?

A few have been calling for “debt forgiveness,” a remedy analogous to cancer surgery. That may be a good start, but even that does no go far enough. We can excise the cancer, but if we do not recognize and eliminate its fundamental cause it will simply grow back. We can restart the game of Monopoly, but the outcome of the next round will be very much like that of the previous round unless we change the rules — or choose to play a different game.

The fact is, there is a debt imperative that is built into the global system of money and banking, and debt is eating us alive. As I wrote in my first book more than 20 years ago, our money system, based as it is on banks’ lending money into circulation at compound interest, requires debt to grow with the passage of time. Virtually all of the money today is created when banks make “loans.” The compounding of interest on these loans means that debt must grow as time goes on, not slowly, but at an accelerating rate. Ever greater amounts of money must be borrowed into circulation for this system to continue. When the private sector debt can no longer be expanded, government assumes the role of “borrower of last resort.” That is why government budget deficits have become chronic and continue to grow. In the latest cycle of Bubble and Bust, governments are rescuing the banks by taking “toxic” debt off their hands and giving them government bonds in return. In this way, the system can be sustained a little bit longer, but at costs that have yet to be tallied.

The current global predicament is the late-stage symptom of this fundamental flaw. Every political currency collectivizes credit. It is our credit that supports each national currency. We have allowed the banks to control our credit and we pay them interest for the “privilege” of accessing some of it as bank “loans.”

What must be done? The answer is simple, but few have been willing to hear it: interest must be eliminated from the money system to put an end to the growth imperative. To modern economists, such a proposition is heresy, foolish even, unthinkable! Interest to them is an essential inducement to save and invest and a necessary means of regulating credit and the economy. Nonsense, I say, a gross error and delusion fostered by incessant propaganda, media hype, and financial mumbo-jumbo. In an economy that is free from inflation, preservation of one’s capital is sufficient motivation for saving, and return on productive investments can be had in the form of ownership shares (so-called equity investment) instead of interest on debt. Such equity investments share both the rewards and the risks inherent in a productive enterprise, making the relationship between the user of funds and the provider of funds more harmonious and fair. As for regulating credit, we don’t need interest to do that; we can merely decide to withhold or offer credit, to whom, for what purpose, and in what amounts.

We need to learn to play a different game. We need to organize an entirely new structure of money, banking, and finance, one that is interest-free, decentralized, and controlled, not by banks or central governments, but by businesses and individuals that associate and organize themselves into cashless trading networks. This is a way to reclaim “the credit commons” from monopoly control and create healthy community economies.

In brief, any group of traders can organize to allocate their own collective credit amongst themselves, interest-free. This is merely an extension of the common business practice of selling on open account — “I’ll ship you the goods now and you can pay me later,” except it is organized, not on a bilateral basis, but within a community of many buyers and sellers. Done on a large enough scale that includes a sufficiently broad range of goods and services spanning all levels of the supply chain from retail, to wholesale, to manufacturing, to basic commodities, such systems can avoid the dysfunctions inherent in conventional money and banking and open the way to more harmonious and mutually beneficial trading relationships that enable the emergence of sustainable economies and promote the common good.

This approach is no pie-in-the-sky pipe dream, it is proven and well established. Known as mutual credit clearing, it is a process that is used by scores of commercial “barter” companies around the world to provide cashless trading for their business members. In this process, the things you sell pay for the things you buy without using money as an intermediate exchange medium. It’s as simple as that. According to the International Reciprocal Trade Association (IRTA), a major trade association for the industry, “IRTA Member companies using the “Modern Trade and Barter” process, made it possible for over 400,000 companies World Wide to utilize their excess business capacities and underperforming assets, to earn an estimated $12 billion dollars in previously lost and wasted revenues.”

Perhaps the best example of a credit clearing exchange that has been successful over a long period of time is the WIR Economic Circle Cooperative. Founded in Switzerland as a self-help organization in 1934 in the midst of the Great Depression, WIR provided a means for its business members to trade with one another despite the shortage of official money in circulation. Over three-quarters of a century, in good time and bad, WIR has continued to thrive. Its more than 60,000 members throughout Switzerland trade about $2 billion worth of goods and services annually.

Yes, it is possible to transcend the dysfunctional money and banking system and to take back our power from bankers and politicians who use it to abuse and exploit us. We do it, not by petitioning politicians who are already bought and paid for by an ever more powerful elite group, but by using the power that is already ours to use the resources we have to support each other’s productivity and to give credit where credit is due.

Inside Job is a recently released documentary film about the causes of the present financial crisis. I’ve not yet seen it, but from all indications it’s a blockbuster that exposes massive criminal fraud and malfeasance by both Wall Street and Washington. Watch this video as Dylan Ratigan on MSNBC speaks with the film’s director and Professor William Black.

Max Keiser interviews a Greek economist who explains how an artificial crisis was created by banks and institutions to force Greece to accept IMF conditions. It is a pattern that is being repeated over and over.

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